Around 65 percent of private equity professionals investing within the MENA region expect an increase in investment activity over the next year, according to a Deloitte private equity confidence survey.

Convergence of the buyer-seller valuation gap and higher levels of free cash in both corporate and family offices were found to be driving optimism for growth in regional investment activity.

Around two-thirds of respondents said they would be looking to raise a new fund within the next 12 months owing to low cash reserves.

“General partners (GP) remain optimistic towards continued long-term growth prospects in the MENA region; however, as the industry enters a new investment cycle and limited partners (LP) increasingly consider direct or co-investment options as a viable alternative to blind pool investing, the focus on exits is critical,” said Chris Carney, assistant director, Deloitte corporate finance, MENA.

“A more sophisticated approach, including the growing trend to use vendor due diligence, will improve individual asset returns and safeguard future funding.”

The survey also found that 23 per cent of respondents expect an increase in exit activity within their fund this year with nearly a third of respondents indicating that a regional or international listing would be their most viable exit option.

According to the survey, the UAE and Saudi Arabia are becoming target areas for the region’s private equity houses. The majority of respondents said their investment activity would center on these two GCC states.

The survey also noted a general preference towards defensive investments. Around 34 per cent of respondents indicated a preference towards retail and consumer businesses including food and beverage.

Private equity investment in sectors like education, healthcare and oilfield services were found to be competitive and diversification into less familiar fields may be necessary to secure the required internal rate of return, said the survey.